2015-2016 AESES Queries

AESES Finance Questions

1) Currently the University has defined reserves in excess of over $800,000,000 as of 2014 Annual Report. What is the make-up of these reserves and why are these funds not available to limit or reduce some of the financial constraints being experienced by the majority of operating areas?

(If you refer to page 45 section 16 Fund Balance of the 2014 Annual Financial Report, it outlines a series of funds that in total add up to more than the $800,000,000. In reading the document it does not separate what is actual funds held for specific purposes and what is buildings or land holdings which are not liquid assets. As a whole the amount grew from $1,410,272 in 2013 to $1,544,609 which looks like a gain of $144,000,000 in that year alone. We are trying to appreciate the nature of the funds and why it is necessary for these funds to be held outside the general operations of the University?)

The University uses the restricted fund method of accounting for contributions. We classify resources used for various purposes into separate Funds which correspond to our major activities and objectives.

Looking at Note 16 Fund Balance and the total of $1,544,609 at March 31, 2014 it might be best explained as a matrix. If you look across the table you can see the first five columns are restricted for various purposes and the sixth column is unrestricted. If you look down the table you can see which Fund is the owner of the fund balance.

End of year fund balances represent the dollar amount accumulated in the fund (far right column) and whether it is restricted or not (second from bottom row).

The individual elements of the table are:

Fund

Comments

Balance (000)

General Operating

Represents the net result of operations for the life of the University. While it is unrestricted, there is really no mechanism to access this balance other than to run a deficit in a given year.

$2,306

Specific Provisions

The specific provisions are internally restricted, which means that we have agreed internally to allocate them for a specific purpose. Note that this fund balance decreased by $5.7 million in 2014.

· The largest single element of this is unit carryover ($33.2 million) which represents amount available to Faculties and Units for spending in the next fiscal year.

· $23.8 million represents other special projects for which money has been allocated, including for example IST projects of $8.3 million, School of Art and Extended Ed of $1.5 million each, and many other provisions for items such as Manitoba Grad Scholarships, security upgrade, Faculty provisions for business interruption or business continuity.

· Ancillary Services is expected to be self-sustaining and is allowed to retain the amounts generated in one year to support capital improvements in future years ($5.6 million)

· Various other items of a similar nature except for the Fiscal Stabilization Provision of $3.2 million which is retained as a general provision to protect against unknown future events.

 

 

 

 

 

 

77,038

Expenses funded from Future Revenues

Note that this is a negative number, and it is unrestricted. This could be thought of as maybe the opposite of carryover.

We are required by the accounting standards to record certain liabilities, for example vacation pay for next year, the non-vesting sick leave benefits, and some actuarially determined amounts.

We don’t consider these to be part of the current year budget. For example, we will pay the vacation amounts as people take time off in the following year. Since we extinguish these debts in future years, we are allowed to record this as a negative fund balance at the end of the year. So, although we are required to record the liability on our balance sheet, we don’t fund these amounts and so they show as unfunded, or a negative amount.

(78,236)

Capital Asset Fund

and

Invested in Capital Assets

This represents the contributions from capital asset co-funding arrangements with external parties, contributed capital assets and government grants for acquiring capital assets and retiring capital advances.

The balance is restricted.

These amounts are invested in fixed assets.

915,149

Research and Special

This Fund consists of contributions specifically restricted for research and other special activities. The amounts can only be used in accordance with the contract or agreement. Most of this fund is externally restricted, but $9 million is internally restricted. The internal restrictions represent internally funded research projects.

98,225

Staff Benefits

This includes the LTD and Health/Dental plan experience refunds.

4,848

Trust

The Trust Fund records gifts which may be used in their entirety plus investment income. The majority of these funds are used for scholarships, bursaries, awards, loans, and other scholarly activities.

183,351

Endowment

The Endowment includes gifts which must be invested in perpetuity and the change in fair value of these investments.

341,928

Total

$1,544,609

Understanding the composition of the Fund balances, we can turn to whether there are funds available to limit the budget cuts. The Faculties and Units, along with Central Administration have amounts residing in the Provisions and in the Capital Fund which have been put there to address a particular need. Certainly some capital projects were pursued based on a decision… and if there was adequate funding for capital from other sources, more operating funding could be used for normal operations. Typically, these amounts are set aside from one-time surpluses, for example if a Faculty has unexpected vacancies in a year, they may use the money originally planned for salaries to address a capital need. The infrastructure deficit is estimated in excess of $300 million and we know there is no shortage of pressing needs.

Within the provisions, only the Fiscal Stabilization $3.2 million is for a specific event that is not identified, and we believe this amount is lower than ideal. The balance of the provisions are for specific purposes and if they did not exist, if the units did not have these amounts available to address the specific need, we might see individual faculties and units become even more cautious with their spending, possible to the detriment of employment levels. Some of the provisions also create or continue employment, for example the IST provision for projects affords that unit some predictability and stability over the coming years.

 

2) You have shown operating surpluses, after expenses, for the past 10 years. Why is it necessary to issue a removal of 4% of operating budget’s for most or all of the unit’s on campus in order to provide for a list of new initiatives in related to the Strategic plan?

Operating surpluses have been minimal in recent years, although we do acknowledge that some people have been misinterpreting the financial statements which contributes to a perception of surpluses. The University is not given adequate funding for capital purchases so individual units are responsible for funding equipment purchases and library books with operating funds. Just like with most organizations, capital purchases are not considered an expense – they are an asset and must be recorded as such. When a unit buys equipment, books, etc. that are capitalized, it reduces their ability to spend on operating activities. Because the unit used operating funds allocated to them, we record this as a transfer between the operating and capital fund. We disclose in Note 13 the fund transfers each year, and you will see that of the $49 million in transfers from the operating fund in 2014, $42 million of that was for capital assets. Some of this is for equipment, some for books, and some for larger projects initiated in the Faculty, the unit, or centrally.

Other large transfers include $7 million of funding for research projects, $6 million in scholarships & bursaries, and $6 million from Ancillary Services to pay for the residence and parkade debt. These transfers need to be shown out of the Operating Fund and into the receiving fund so that the amounts can be expended from the receiving fund.

The operating budget must be balanced. The expenditure budget must equal the revenue budget. It is important to note that the 4% reduction is applied to the budget which does not necessary correlate to an expenditure reduction. All of our units ended 2014/15 with a surplus (totalling $~40M) which will be returned to units through the carry-over process. Some units will be able to manage a 4% budget reduction without significantly impacting expenditure levels. Some units will choose to spend less funding on capital expenditures to manage the budget reduction. Some units will review their existing suite of programs and services to determine whether efficiency measures should be introduced and/or if any programs or services should be reduced or eliminated.

 

3) With recent improvements to the Pension Plan’s funding, it is likely to result in a reduction of 3 – 5 million in annual costs? Have any of these savings been factored into the budget process? Our concern is that those savings could be used to reduce some of the burden on units, and therefore reduce both current and future AESES job losses. In addition, help to limit the reduction in services students are going to be facing in the future.

The favourable December 31, 2013 actuarial valuation resulted in lower mandatory payments effective January 2014. The mandatory pension payment baseline was reduced from $19.570 M to $12.5 M 2014/15 ($7.5 million). The mandatory pension payment requirement in 2014/15 was further reduced by the January 1 to March 31, 2014 overpayment (made based on the previous valuation). The surplus funding was transferred to the Mandatory pension payments provision. Payments for 2015/16 are estimated to be $9M. Payments for the first 9 months of 16/17 are estimated to be $6.75M. We are required to file a valuation as of December 31, 2016. Based on current market conditions and record low interest rates, we expect the mandatory payment requirement to increase significantly as of January 1, 2017. Until that time, we will set aside further savings to the pension payment provision to cushion the impact of the anticipated blow.

 

4) You have released your new strategic plan, which suggests that approximately $24 million will need to be released or freed up for identified priorities. Is there a detailed plan for how, and where these funds will be spent? If so, why has there been no transparency regarding which areas will be rewarded with new operating revenue.

The new strategic plan was developed through extensive engagement with our entire community. A similar level of engagement will be required for implementation. Dr. Joanne Keselman, Vice-President (Academic) and Provost, will lead the development of the implementation plan. Over the coming months, a number of working groups will be established addressing specific topics that require focused attention in this first year of implementation. For example, a group has been charged with recommending a renewed approach to strategic resource planning for 2016/17. The working group will address the Plan objective to better link planning and resource allocation in support of the University’s academic mission and priorities. Through the SRP process, units will be asked to submit plans that demonstrate alignment with Taking Our Place.

 

5) As you know over 30 AESES positions have been eliminated in the past 3 months. Is there a specific savings target planned for from AESES wages?

Those 30 jobs were not all budget related. Positions are eliminated for a multitude of reasons. There are no global targets, and units need to be able to set their own priorities on how money is allocated within the unit so that they can meet their goals.

 

6) At this point we are not aware of cuts to funding for the University. Has there been any information from the Province of Manitoba that the University is to expect either, freeze funding or reduce their current contribution?

The Provincial Budget will be tabled on April 30, 2015. The draft 2015/16 budget has been developed on the assumption that the base grant will increase by 2.5% or $8,317M. Tuition fee increases of 1.9% have been authorized effective September 2015. Enrolment however, is expected to decrease by 2%.

Projected salary increase requirements for 2015/16 are $12.751M. Other factors are taken into consideration when developing the operating budget such as non-salary inflation. For example, an additional $539,000 is required to offset the increasing cost of library acquisitions in 15/16.

7) Are there plans to redirect any of the savings made by reducing AESES positions to other working groups (UMFA/Excluded/etc.)?

 

Units set their own priorities on how money is allocated within the unit so that they can meet their goals. Generally savings will be used to balance the budget, rather than being redirected to other employee groups.

We recognize the risk of disproportionate cuts to support staff, and have made it part of the University’s new strategic plan to maintain balance: IV. e. i. says “Balance staff and faculty levels to meet academic and administrative requirements.” We are actively looking for ways to make sure balance is maintained (for example, through the retirement program).

 

8) We have a concern that the nature of the current budget process, which treats all operating units relatively equal, does not result in structural changes to the University. How does the University plan to reduce operating budgets, not result in additional workloads for the remaining AESES staff?

The net impact to operating budgets each year is rarely a reduction. Funding is held centrally and transferred throughout the year to cover the cost of salary increases for all baseline funded positions. Units however are responsible for managing their budgets to ensure that expenditures do not exceed funds available. Units need to critically assess their processes, practices and services offered to ensure that workloads are distributed fairly. One example is through the establishment of service hubs that support a larger group of units with teams and/or individuals responsible for various functions – as opposed to individuals being required to be proficient in multiple systems and processes (EPIC, Concur, Banner Finance, FAST, Banner Student etc.)

The administration recognizes that managing workload and work distribution are important issues to address in order to preserve and promote employee satisfaction. This was identified as one of our strategic priorities, and section VI. C. iv. says that we will work to “Improve workload distribution to ensure staff are able to maintain an appropriate work-life balance consistent with their career objectives”. Although we have some ideas regarding how we can achieve this goal, we are also very interested in hearing from AESES and employees directly.

 

9) The University has had an ambitious capital building campaign for the past 8-10 years. With the uncertain financial circumstances facing both the Provincial and Federal governments it would suggest it more prudent to limit capital expansion and drive more operating expenses into student services and delay campus expansion until revenues are sufficiently ahead of expenses. Why has the administration not made student services a priority?

Universities must balance the need for capital construction with operating requirements. Capital construction has been significant and the results have been greatly appreciated by our students, faculty and staff.

Some capital projects are choice (Biological Sciences, Art Lab, Pharmacy, Engineering, Taché Hall, Pembina Hall, Active Living Centre, Classroom and Laboratory Upgrades). Some capital projects are by necessity (Duff Roblin, T – Building, Buller, Asbestos Remediation). While operating funding has supported capital construction, the majority of the funding for capital projects has been from government, debt financing and donor support. Debt servicing for revenue producing properties such as Residences, Parkades, Smart Park, ALC are paid for through the collection of rent/user fees.

On the other hand, student services are a priority. In excess of $7.5M in baseline funding was redirected to the Student Experience over the past 6 years. In addition, a number of IT projected have focused on the improving student services.